Pakistan economy worst off in five years: central bank

DPA Karachi, May 31 (DPA) Pakistan’s economic growth hit its slowest pace in five years at below six percent due to deteriorating domestic and international developments, the central bank said Saturday. “Real GDP growth in FY08 is expected to drop below the six percent level for the first time in five years,” said central State Bank of Pakistan in its third quarterly report for fiscal year 2007-2008 (July-June).

The report said Pakistan was “showing an increasing sign of stress” due to an adverse domestic and international developments, pointing towards domestic food shortages and rising global oil prices.

As a result of rising food and oil prices “annual inflation is poised to return to double digits”, says the report.

“Inflation is already a serious policy concern for Pakistan, with CPI (Consumer Price Index) inflation at 17.2 percent year on year for April 2008, the highest level in a month since April 1995,” the report said.

“The fiscal deficit is forecasted to rise substantially and the annual current account deficit, as a percentage of gross domestic product, is projected to be at an all-time high,” the central bank said.

Thus, the central bank has projected economic growth between 5.5 percent and six percent by the fiscal year end June 30.

Pakistan is facing a double whammy. On the one hand, the removal of subsidies is causing increased inflation while already existing subsidies are causing the budget deficit to soar. It is projected to reach 6.5 percent to seven percent over a mere 4.3 percent in fiscal 2007.

The new fiscal year budget for 2008-2009 is expected to be tabled in parliament next month and may include punitive taxes and spending cuts for social projects.

Pakistan is also facing a severe political crisis and embattled President Pervez Musharraf is facing pressure to resign and threats of impeachment by parliament.

Earlier this month the coalition between the ruling Pakistan People Party of slain Benazir Bhutto and former premier Nawaz Sharif fractured over the restoration of deposed supreme court judges, exacerbating the fears of further political uncertainty. DPA